Saudi Arabia Cuts Spending, Slows Payments, Hits Spain Inc.
Ugly for Spain’s over-indebted, liquidity-challenged construction giants.
It’s almost a whole year since the House of Saud shocked the world by announcing its scheme to let market forces determine oil prices. It then did the unthinkable: it cranked up oil production. What followed was arguably the biggest price war of this fledgling century, as the price of oil fell by more than 50% in six months.
Suicide Economics
For struggling energy consumer nations, the collapse of the oil price has been a godsend; for producer nations, it has been a source of incalculable economic pain and misery. When the Saudis had their all-in moment, it was widely assumed that Russia, as well as a host of other unsavory oil-dependent “regimes” (such as Venezuela), would be first to buckle.
Eleven months on, Venezuela’s economic edifice is in tatters, Russia has lost billions of dollars in crude revenues, and the U.S. shale industry – broadly assumed to be the Saudis’ second target – is being kept alive only by increasingly difficult-to-come-by and expensive infusions of debt.
Yet despite all the balance sheet carnage, the Saudis have not won their oil price war. Not yet. Indeed, as prices continue to bite, it is the Saudi economy that is beginning to feel the pain, especially with an aggregate deficit for 2015 to 2017 forecast to exceed $300 billion.
The effects are now ricocheting around the economy, hitting businesses in Saudi Arabia and beyond. Here’s more from Bloomberg:
Saudi Arabia is delaying payments to government contractors as the slump in oil prices pushes the country into a deficit for the first time since 2009, according to three people with knowledge of the matter.
Companies working on infrastructure projects have been waiting for six months or more for payments as the government seeks to preserve cash, the people said, asking not to be identified because the information is private.
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